Annual report pursuant to Section 13 and 15(d)

INCOME TAXES

v3.23.1
INCOME TAXES
 12 Months Ended
Dec. 31, 2022
INCOME TAXES  
INCOME TAXES

NOTE 18. INCOME TAXES

The components of the income tax provision are as follows:

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​

​

​

​

​

​

​

​

​

Years Ended December 31, 

($’s in thousands)

    

2022

    

2021

Current:

​

​

  

​

​

  

Federal

​

$

—

​

$

—

State

​

 

63

​

 

67

Total current

​

 

63

​

 

67

​

​

​

​

​

​

​

Deferred:

​

 

  

​

 

  

Federal

​

 

(6,701)

​

 

(7,829)

State

​

 

(1,737)

​

 

(1,474)

Total deferred

​

 

(8,438)

​

 

(9,303)

Valuation allowance

​

​

8,438

​

​

10,870

Total income tax expense

​

$

63

​

$

1,634

​

Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating losses and tax credit carryforwards.

The significant components of the Company’s deferred tax assets consisted of the following:

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​

​

​

​

​

​

​

​

​

December 31, 

($’s in thousands)

    

2022

    

2021

Deferred tax assets:

​

​

  

​

​

  

Net operating loss carryforwards

​

$

6,553

​

$

3,113

Amortization of license fees

​

 

4,951

​

 

4,760

R&D capitalization

​

 

2,462

​

 

—

Stock compensation

​

 

1,293

​

 

667

Lease liability

​

​

48

​

​

25

Reserve on sales return, discount and bad debt

​

 

2,988

​

 

3,573

Accruals and reserves

​

 

574

​

 

505

Tax credits

​

 

1,152

​

 

193

Business interest expense deduction limit

​

 

322

​

 

41

State taxes

​

 

13

​

 

12

Total deferred tax assets

​

 

20,356

​

 

12,889

Less: valuation allowance

​

​

(19,307)

​

​

(10,870)

Deferred tax assets, net

​

$

1,049

​

$

2,019

​

​

​

​

​

​

​

Deferred tax liability:

​

​

​

​

​

​

Section 481(a) adjustment on reserve on sales return, discount and bad debt

​

​

(1,001)

​

​

(1,996)

Right-of-use asset

​

​

(48)

​

​

(23)

Deferred tax assets, net

​

$

—

​

$

—

​

A reconciliation of the statutory tax rates and the effective tax rates is as follows:

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​

​

​

​

​

​

​

​

Years Ended December 31, 

 

​

    

2022

    

2021

 

Percentage of pre-tax income:

​

  

​

  

​

U.S. federal statutory income tax rate

 

21

%  

21

%

State taxes, net of federal benefit

 

4

%  

4

%

Non-deductible items

 

(0)

%  

(5)

%

Provision to return

 

0

%  

0

%

Change in state rate

 

0

%  

0

%

Change in valuation allowance

​

(28)

%  

(26)

%

Other

 

3

%  

2

%

Effective income tax rate

 

(0)

%  

(4)

%

​

The Company has incurred NOLs in previous years. As of December 31, 2022, the Company had total federal NOLs of approximately $27.0 million, of which $7.6 million is subject to expiration and will begin to expire in the year 2033, total state NOLs of $17 million, of which $4.7 million is subject to expiration and will begin to expire in the year 2026, and federal income tax credits of $1.2 million, which will begin to expire in 2031. Approximately $19.4 million of the federal NOLs and $12.3 million of the state NOLs can be carried forward indefinitely. The utilization of the Company’s NOLs are subject to annual Internal Revenue Code Section 382 limitations (382 Limitations). Based on the analysis of the NOLs carryovers subject to the 382 Limitations, the Company has concluded that the 382 Limitations would not prevent the Company from utilizing all of its NOLs carryovers before expiration.

The Company is subject to U.S. federal and various state taxes. As of December 31, 2022, the earliest federal tax year open for the assessment of income taxes under the applicable statutes of limitations is its 2019 tax year. The expiration of the statute of limitations related to the various state income and franchise tax returns varies by state.